Colliers Flash Philippines 2Q GDP

Infra-led GDP to buoy property

Makati, August 24, 2017 – The Philippine economy, as measured by real gross domestic product (GDP), accelerated by 6.5% in 2Q 2017. This is slightly faster than the 6.4% logged in 1Q 2017 but slower than the 7.1% recorded in the same period last year.

The slower growth YoY can partly be attributed to the lack of election-related spending which traditionally bolsters household and government expenditures. Despite this, the Philippines remains as one of the fastest-growing economies in Asia. Moving forward, much of the country's growth will hinge on ramped-up infrastructure spending, which should support the Duterte administration's commitment to build crucial projects throughout the country.

The ushering in of the "golden age of infrastructure" also lends support to the government's decentralization push which should unlock land values in areas outside of Metro Manila and stimulate business activities in the countryside. Given this, we recommend that developers zero in on the thriving opportunities outside of the country's capital.

Healthy spending indicators to support retail growth

Overall indicators point to strong household spending for the rest of the year with central bank projecting OFW remittances to rise by at least 4% this year to an estimated USD31 billion and annual inflation rate still expected to hover within the central bank’s projection of 2-4%.

Per capita GDP, a proxy for individual income, grew by 5%, providing impetus for developers to build retail outlets not only within Metro Manila but in other urban areas as well. Ayala is opening seven malls in Metro Manila this year while Rockwell Land is expanding its Power Plant Mall.

Online shopping in the country has been gaining traction with more developers such as Ayala and SM partnering with online shopping platforms and logistics firms such as Zalora, Lazada, and 2Go to reach far-flung areas that are slowly becoming hotspots for online shopping. Amazon’s recent launch in Singapore is indicative of the growing interest in the Southeast Asian region given the people’s surging disposable incomes. However, dilapidated road and air transport infrastructure raise the cost of doing business and hinder online shopping and logistics firms from making massive investments.

In Metro Manila, the continued expansion of BPOs as well as traditional firms should result in increased employment opportunities. This, in turn, should boost demand for more worker-accommodation units in the country’s capital.

SM is tapping opportunities in the affordable condo market for BPO employees and other young urban professionals thru its acquisition of a 61.2% share in Philippines Urban Living Solutions Inc. (PULS), the operator of a chain of dormitory buildings under the “MyTown” brand while Ayala Land is building five dormitory buildings under the “The Flats” brand in Makati and Bonifacio Global City.

Colliers believes that a significant part of the USD31 billion in remittances projected to be sent in by OFWs this year will be set aside for Filipinos’ housing requirements. A survey conducted by the National Economic and Development Authority (NEDA) reveals that nearly two-thirds of Filipinos consider owning a medium-sized home as one of their key aspirations.

Domestic travelers sustain hotel demand

According to the Philippine Statistics Authority (PSA) the Other Services segment, which covers restaurants, hotels, and similar facilities, grew by 5% in 2Q 2017, a slowdown compared to the poll spending-driven 9% rise in the same period in 2016. PSA data also reveal that Filipino households’ hotel and restaurant spending has been growing by 7.3% annually over the past seven years, faster than the increase of other household spending subsectors such as food and beverage (7.3%), education (4.8%), and clothing and footwear (1.4%). This indicates that Filipinos continue to apportion a considerable fraction of their incomes to leisure-related expenditures.

We see Bacolod, Bohol, Cagayan de Oro, and Davao attracting more hotel and leisure investments given that their respective regional airports are up for expansion and modernization. These projects, once completed, should result in the mounting of more direct flights to these provincial hubs and raise hotel occupancy rates.

Traditional businesses drive office space absorption

The continued creation of employment opportunities in the country bodes well for the office sector as jobs are the greatest drivers of office space take up. Data from the Philippine Statistics Authority (PSA) reveal that there were 40.27 million employed Filipinos as of April 2017. The figure is higher than the 39.35 million Filipinos with jobs as of January of this year. Employment opportunities generated by ICT, Financial services, and administrative and support sub-sectors reached 4.39 million as of April 2017, up 8% from 4.05 million in January 2017. Metro Manila corners bulk of these new employment opportunities given that it accounts for nearly 40% of the country’s economic output.

Given the current administration’s decentralization push, we believe that firms should consider expanding in the provinces where the government intends to spur development by offering more fiscal and non-fiscal incentives and building crucial infrastructure projects such as airports, subways, and railways.

Surging exports contribute to industrial space demand

Fixed capital formation, which represents both local and foreign investments, grew by 9.4% in 2Q 2017, a huge slide from 30.3% increase posted in the same period in 2016. But the drop was offset by exports, which rose by 19.7%, faster than the 10.6% growth logged in 2Q 2016. The expansion of the country’s export base indicates a potential increase in demand for industrial parks and facilities especially in the Cavite-Laguna-Batangas, the country’s primary industrial hub. The goods manufactured within the Cavite-Laguna-Batangas industrial corridor are a significant contributor to the Philippines’ annual export bill.

We see the demand for industrial parks and facilities being sustained by the expansion of existing locators such as British consumer product manufacturer Dyson and Taiwanese electronics firm Kinpo Group; Filipino conglomerates’ (e.g. Ayala and San Miguel Corporation) diversification into manufacturing; improvement of the Philippines as a regional manufacturing hub; and expansion of consumer base brought about by ASEAN integration.

Infra implementation and decentralization to spur property sector

We see the country sustaining robust growth on the back of the government’s infrastructure and decentralization push. Among the key economic segments that will benefit from the government’s thrust is property development. Infrastructure implementation coupled with decentralization should spur the growth of office, residential, retail, industrial, and hotel & leisure segments.